Clues to 2010 Mortgage Market
The Federal Reserve is winding down its $1.25 trillion in agency mortgage-backed security, purchases, but it's still in there buying, and that is keeping interest rates on the 30-year fixed right around a very low 5 percent.
Despite that fact, borrowers last week pulled out of the mortgage market, specifically refinances. Part of that may be due to far higher lending standards.
Yesterday I wrote about my own refi frustrationsand many of you wrote in to commiserate.
Today's FOMC statement said the following:
To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve is in the process of purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. In order to promote a smooth transition in markets, the Committee is gradually slowing the pace of these purchases, and it anticipates that these transactions will be executed by the end of the first quarter. The Committee will continue to evaluate its purchases of securities in light of the evolving economic outlook and conditions in financial markets.
I'm mostly interested in the last bit, which clearly leaves the door open. There's been a lot of debate over whether the government can pull out of the housing market in such a large fashion, on mortgages and in the home buyer tax credit, and still expect to see a continued housing recovery over the summer.
I just spoke with Rick Sharga of the online foreclosure sale site RealtyTrac.com, regarding a report coming out tomorrow, but we also talked generally about housing recovery in 2010. He expects to see several different spikes in foreclosures over the coming year and into 2011, and he believes wholeheartedly that these foreclosures will be unavoidable and highly detrimental to a recovery in home prices.
"Even if we peak in terms of unemployment rates in the first quarter of 2010 the foreclosure activity related to those job losses probably won't peak until the end of 2010 or the first quarter of 2011," says Sharga. And he believes there will be a third wave from resets on pay option ARM loans and Alt-A loans (loans underwritten with little to no documentation).
There is more and more talk of principal write-down, as the underwater elephant in the room weighs heavily on any recovery. Today I even heard that the Hope For Homeowners program, which came into being under the Bush administration and did very little to help anyone stay in their home, may be retweaked to deal with the underwater issue (when borrowers owe more than their home is worth). Part of H4H is principal write-down, unlike the big HAMP bailout from Treasury which requires no reduction of principal.
Stay tuned folks, this is going to be a very choppy Spring season in the housing market.
Questions? Comments? RealtyCheck@cnbc.com